Have you heard of the old tale about the monkeys in the basement?
We’re not sure exactly where it came from, but we were discussing it before a finance conference we attended in New York. The topic of conversation was people reacting to stimulus that isn’t actually there.
This is how the tale goes: there are five monkeys in a basement (when or where is not important!) One tries to climb the stairs to get out, and as soon as it does, all of the monkeys are hosed with water. Quickly, they learn the consequence of climbing the stairs, and as soon as one of the monkeys heads to the stairs, the others grab it and beat it up. Not very nice, but you get the picture.
The tale goes on to say that if you take one of the monkeys out and add a new one, the first thing it will do is head towards the stairs – and of course, it’ll be grabbed by the other monkeys right away and beaten. So the new monkey also learns that for whatever reason, approaching the stairs is not a good idea!
The theory is that over time, you could replace all the monkeys and still get the same result. You end up with five monkeys who all know it’s a bad idea to climb the stairs, but no idea why. They’ve never been hit with the cold water, but they know never to go near the stairs as it means they get beaten up.
The tale got us thinking: there are many situations in people’s lives in which they are responding to a stimulus that isn’t there – or isn’t there any more. The actions taken are based on thoughts or feelings, but not based on fact.
A good example of this is interest rates. People approaching retirement think they need a lot of money in cash, for example in term deposits, rather than invested in the sharemarket. It is seen as being ‘safe’. But if you asked them why, and explained that banks have a return of around 1% only, they probably wouldn’t be able to answer.
A long time ago, people retired at 65 and were able to live off the return from their term deposit because rates were so much better than they are now.
Additionally, compared to forty or fifty years ago, we now retire earlier, live longer, and spend more. Retirement planning has changed significantly due to these factors. And it can be really tough funding a 30 to 35-year retirement.
It’s easy to close our eyes and convince ourselves everything will be okay when it comes to retirement planning. But the truth is, it’s much better to arm yourself with knowledge and invest wisely. It’s certainly better than repeating what previous generations have said and done, just like those monkeys in the basement! Get the facts, make a plan, and get up those stairs.
